1 How to mobilise political support and public opinion for reform ? The political economy of pension reform Agnieszka Chłoń-Domińczak Presentation is based on A.Chlon/M.Mora, Commitment and Consensus in Pension Reform

2 Stages of the pension reform Description  Commitment-building Objective: to work out a single proposal for the pension reform Characteristics: extensive bargaining, debate and negotiations. Crucial: commitment, expressed by politicians, agreement among experts.  Coalition building Objective: concept presentation, its dissemination, feedback and consensus building, working on new legislation and passage of laws. Crucial: commitment, macroeconomic stability, availability and approval of foreign and local expertise, public information and dialogue with all actors.  Implementation Administrative and management issues, related to building new institutions and reforming existing ones (most importantly – existing social security administrations that have to adapt to the new environment)

3 Stages of the pension reform International experience

4 Role of Economics and Politics Fiscal deficit ‘The deficit also acts as a driving force to proceed with the planned reforms and even to take decisions that are not always popular’ ‘The reform debate was triggered by the huge deficit. So we must expect only a parametric reform in the PAYG system. A private system is not being considered. There is consensus in the society against private pension plans. So a reform of this kind is politically infeasible.’ ‘It is often used as an excuse’

5 Role of Economics and Politics Explain reasons for the reform and find allies  Political commitment is crucial  government must have a single, well- communicated proposal  cross-party consensus is an asset  Well-communicated need for and reasons helps to achieve political support  ‘ The fiscal deficit acts as a driving force to proceed with the planned reforms and even to take decisions that are not always popular’  Opinion polls and other measures (FGI) help to support the idea

6 Role of Economics and Politics Role of political consensus  Best reform outcomes in longer terms achieved in countries that have build a cross-party political consensus:  In Sweden: a reform coalition was build, covering practically all political parties represented in the Parliament  In Poland: the first pension laws were voted with 95% majority, successive governments follow implementation of the same reform  Recently in Denmark: a broad consensus including social partners build to implement pension system changes

7 Role of Economics and Politics Economic Motives for reform Note: The scale from 3 (highest) to 1 (lowest) Source: A.Chlon/M.Mora, Commitment and Consensus in Pension Reform 1,09 1,18 1,53 1,68 2,88 0,0 0,5 1,0 1,5 2,0 2,5 3,0 financial sustainability improved poverty alleviation improved protection of workers economic growthdevelopment of financial market

8 Role of Economics and Politics Agreement among experts Source: A.Chlon/M.Mora, Commitment and Consensus in Pension Reform agreementdisagreementpositive economics policy value differences policy value differences and disagreement about positive pension economics number of answers

9 Role of Economics and Politics Definitions of pension reform

10 Role of Economics and Politics Role of actors Source: A.Chlon/M.Mora, Commitment and Consensus in Pension Reform

11 Institutions involved in pension debate POLISH WAY OF DIALAGUE Source: A.Chlon/M.Mora, Commitment and Consensus in Pension Reform

12 Coalition building Key groups  Media  having a core group of friendly journalists is an asset  have a consistent message  reform should have an image  Veto and proposal actors  Interest groups  Donors and international organisations  can and should be involved in reform work  ensure co-operation  but the ownership should be in the country

13 Coalition building The role of society ‘ Society reacted very intensively. In general, the media, trade unions, and many of professional organisations were strongly opposed to the proposals for radical and substantial changes in the current pension system. The mass media and government regularly presented and/or read the opinion surveys’ ‘The civic society played no dominant role. Generally, the main message of the campaign was the necessity to close the deficit of the old system, as well as the opinion and the intern investigation to convince the other political actors about the reform necessity’ Source: A.Chlon/M.Mora, Commitment and Consensus in Pension Reform

14 Coalition building The role of trade unions Social partnership is used in two aspects: 1. The responsibility for the unpopular part of the reform is shared; 2. Experts from union and employer organisations are used. This certainly has its price – compromises have to be made with respect to the radical nature of the reform and the pace of transition. The tripartite system did influence the reform process. The unions were strongly opposed to the introduction of the mandatory second pillar. They were also strongly opposed to a larger parametric reform of the PAYG system, particularly in the increase of statutory retirement age Source: A.Chlon/M.Mora, Commitment and Consensus in Pension Reform

15 Coalition building Public information  Most countries conduct some kind of public information campaign  Main goals: to promote and to educate “To convince the public of the advantages of the new Pension system. To provide thorough information on the essence of the new Pension system in a popular language. To provide thorough information, through seminars and workshops, and educate journalists who would then disseminate the reformers’ message.”  Phases: commitment building and implementation  Most popular media used, but also other initiatives

16 Coalition building Role of media in the reform process  Role of media in the reform process:  forum for experts’ discussion  information  comments and criticism

17 Coalition building Compromises are unavoidable  Retirement ages and early retirement  Risk of reversing some of the changes (Poland)  Contribution levels and transition costs  Gradual increase of contribution may lead to slower transition (Hungary)  Portfolio structure and investment abroad  Preferences for domestic investments (Poland)

18 Example of Poland Implementation and its problems...  Focusing on appearing problems  Criticism of ZUS and failure of implementation  Huge informative role at the beginning of 1999  Continuing coverage in 2000  lower interest  more commentary than information

19 Media and pension reform Articles with selected keywords  Media interest in ZUS was increasing, peaking in 1999, following the pension reform development  Indexation caused the largest interest in , when the rules of indexation were significantly changed

20 Conclusions  Commitment building  difficult situation of the PAYG system  internal agreement and political will  external ‘push’  building consensus among experts and politicians  Coalition building  strong role of the trade unions  society - active and passive  role of public information  Implementation  Potential difficulties underestimated  Risk of reversing some of the measures  Political support does not last for ever  Postponing legislative process can become risky